Morgan Housel | The Motley Fool Investor: When there's an upside to being miserable

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A gallon of gas now costs less than it did 10 years ago.

That's amazing, the result of a near doubling of U.S. oil production since 2008.

But don't forget why this happened.

Two-dollar gas today would not be possible without $4 gas last decade. The only reason it's amazing today is because it was miserable yesterday, which incentivized oil companies to get innovative and find a solution.

The more you look, the more you'll see this pattern. Everything that's good today was borne from something that wasn't good in the past. The reverse is also true. Most of our current problems stem from past comforts that we cheered for, but made us lazy and complacent.

Once you recognize how powerful this irony is, your opinions about financial stress might change.

I lived in Orange County in the early 2000s, where large egos collided with low IQs to produce some of the worst financial behavior in history. Anyone could have anything they wanted thanks to an endless river of no-questions-asked debt. People loved it. The feeling of success was effortless while it lasted. Which, of course, it didn't.

What's rarely discussed but just as important is how the pain of the ensuing financial crisis changed consumer behavior for the better.

A deep recession scares people witless, which forces them toward smarter decisions. It took 10 percent unemployment and a 50 percent market crash to get people to cut up credit cards, move out of the house they couldn't afford, sell the stuff they never used and start saving money again.

The personal savings rate is now double what it was last decade. Household debt payments are at a 30-year low. 401(k) participation is at a record high. Average car fuel efficiency is up. The comfort of the early 2000s gave us some of the dumbest financial behavior ever seen, while the pain of the last six years necessitated some of the smartest, most rational behavior witnessed in decades. So which should we cheer for?

It's hard to admit that people act smarter when they're stressed and the economy is weak, because no one wants a weak economy. But there's so much indication that it's true. Necessity is the mother of invention, and there's evidence that entrepreneurship increases during recessions. According to the Kaufman Foundation, more than half of Fortune 500 companies were founded during a recession or bear market. The supermarket and laundromat were both created during the Great Depression as solutions to a weak economy. Penicillin, credited with saving tens of millions of lives, didn't go into widespread use until World War II stimulated frantic scientific development. "The excess energy released from overreaction to setbacks is what innovates!" Nassim Taleb writes.

Scarcity motivates

In their book "Scarcity: Why Having Too Little Means So Much," Sendhil Mullainathan and Eldar Shafir write:

"When scarcity captures the mind, we become more attentive and efficient. There are many situations in our lives where maintaining focus can be challenging. We procrastinate at work because we keep getting distracted. We buy overpriced items at the grocery store because our minds are elsewhere. A tight deadline or a shortage of cash focuses us on the task at hand. With our minds riveted, we are less prone to careless error. This makes perfect sense: scarcity captures us because it is important, worthy of our attention."

Taleb writes about the same idea in his book "Antifragile": "The record shows that, for society, the richer we become, the harder it gets to live within our means. Abundance is harder for us to handle than scarcity."

The downside of not having enough stress can be amazing.

When online gaming company Zynga went public a few years ago, it warned investors of a weird problem. "Many of our employees may be able to receive significant proceeds from sales of our equity in the public markets after our initial public offering, which may reduce their motivation to continue to work for us," it wrote. Employees were so successful they lost motivation. Innovation doesn't happen with deep pockets; it happens at companies that will die unless they do something big, fast. Apple was nearly bankrupt and created the iPod. Microsoft had $60 billion in the bank and created the Zune.

A while back, I spoke with a colleague about a company that paid off its debt, freeing it from the chains of creditors. I thought this was a great thing. He disagreed. "All companies should have a little debt," he said. "Just enough to keep them focused, less distracted by temptation and thinking twice before blowing money on bad ideas." Too much freedom can be devastating, as lottery winners and trust-fund babies often prove.

There's some convincing data behind this idea.

Kelly McGonigal is a health psychologist who, as she says, "was taught to view stress as the enemy of well-being, productivity, happiness and of health."

But she changed her mind after looking at the data, and describes an amazing theory called the stress paradox.

Benefiting from stress

Years ago, the World Gallup Poll asked people from 122 countries if they experienced a lot of stress the last 24 hours. This created a stress index, ranking countries around the world.

Psychologists then overlaid the stress index against things like GDP growth, life expectancy, happiness, life satisfaction and fulfillment at work.

They expected a strong correlation between stress and happiness, and there was. But it was in the opposite direction they expected. Countries with higher than average stress were happier, healthier and more satisfied with life than less stressed ones.

Why? Likely because stress pushes people into action, toward things they enjoy and that matter most.

"Stress can be a signal that you are engaged, pursuing goals and facing challenges that will also give rise to meaning in your life," McGonigal said. "Even though we experience stress in the moment as undesirable, it's a barometer for how engaged you are with the things that ultimately bring learning, growth and happiness. Stress actually goes along with the things we most desire."

Just like a stressful economy brings us low oil prices, less consumer debt and a higher savings rate.

This has obvious limits. As Taleb says, "Try to get in trouble. I mean serious, but not terminal, trouble." Too much stress clearly backfires. The working poor are often criticized as lazy and unmotivated, like they don't have enough stress. But as Ezra Klein wrote a few years ago, these critics "don't seem to realize how difficult it is to focus on college when you're also working full-time, how much planning it takes to reliably commute to work without a car, or the agonizing choices faced by families in which both parents work and a child falls ill." A little stress sharpens your focus. Too much destroys it.

But most of us can learn from the stress paradox.

How many people were excited about $4 gas, realizing it was the key to an energy revolution that would usher in cheap gas? Very few. How many of us got excited during the financial crisis, realizing it was step one toward better household financial behavior? Almost no one.

Maybe we shouldn't cheer for financial stress, but we should realize how necessary it is to make progress.


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